Traditionally, developed countries have dominated renewable energy. Not only do they have money available to invest, but they're often bound by renewable energy directives. For example, the 28 member states in the European Union must have 20% of their energy come from renewable sources.
Recently, however, emerging markets are playing catch-up. Many of these countries have sunnier climes which could make solar power a reliable and cheap energy alternative. The price of photovoltaic solar panels has dropped 80% in the past decade. The affordability of solar panels has created a lot of new opportunities. Some emerging markets have already taken advantage. And Scatec Solar has provided many of the panels.
Founded in 2007, Scatec Solar ASA (SSO.OL) is a Norwegian company that has succeeded in emerging markets. Its largest solar power plants are in Brazil, Egypt, and South Africa. Scatec partners with governments and development banks. Then they build the solar farms to supply the local power grid. According to Bill Alpert from Barron's, "600 megawatts of power plants are in operation, with an additional gigawatt under construction. About 4.5 gigawatts more are in the deal pipeline." With all those expected deals, Scatec Solar should be generating revenue for decades to come.
Last year, Scatec generated earnings of about $25 million. Most of those earnings come from project development fees, not from power production. But when Scatec completes its deals, it will generate more revenue. Scatec is trading at about $9.02 today, and when those projects are completed, the share price might rise.
A third of Scatec's solar enterprises are with South Africa's state-owned utility company, Eskom. Unfortunately for Scatec, Eskom is having financial troubles. Scatec would like to keep its contracts with Eskom, and the feeling is mutual. Renegotiating the contract looms large ahead of the May parliamentary elections. South Africa is pushing to increase its renewable energy, so it doesn't want to back out of the deal altogether. In all likelihood, the two sides will come to an agreement.
Scatec has 190 megawatts of active solar panels in South Africa. And it's building up for 258 additional megawatts. The country aims to create 8 gigawatts of solar energy by 2030.
The Norwegian solar firm is making great strides in South Africa and other emerging markets. It's a trendsetter, and many other renewable energy companies will follow suit. Because Scatec is navigating unfamiliar waters, it will hit snags like renegotiations. But investors are bullish on Scatec Solar because it is leading the renewable energy charge in emerging markets.